Archive for October, 2009

As a young college student studying economics in the 1960’s I was exposed to the writings and philosophy of Leonard Read while researching a paper on Adam Smith’s enlightened principle of the “Invisible Hand”. Mr. Read had founded the Foundation for Economic Education (FEE) in 1948. As I conducted my sophomore research I noted that the thoughts and articles of Leonard Read were inevitably intertwined with the ideas of the capitalist pioneer Mr. Smith.

At that time I stumbled upon an essay that Mr. Read had first published in 1958. The title of the piece was “I, Pencil”. It was so stunningly logical and powerful in its suppositions that I made an unusual decision for an impoverished student of that time, I had the article copied and I have saved it to this very day. Reading the essay for the first time was moving, and more than four decades later I still receive the same jolt of excitement each time I re-read Mr. Read’s short tutorial on the creation of a simple lead pencil and all of the participants who willingly, and unwittingly, participate in the production of the humble implement.

Any student of the origins of capitalist thought, as presented by Adam Smith know that the “Invisible Hand” is the genesis of free market activity. People, acting alone, or collectively, make decisions to produce goods or services that serve their best personal interest. The fact that others may benefit from this productivity is not the primary reason to undertake such activity. Capitalists seek to make a profit from their endeavors, and in so doing, others may benefit. Leonard Read was profoundly an acolyte of Smith, and other great free market thinkers like Frederick Hayek. He believed that free men, working in pursuit of their own best interest would provide more benefit to society that centrally planned economic strategies.

Free men, working in a system that honors private property rights, rule of law, and maximum amounts of individual freedom will always produce a quality of life superior to any that can be generated from leaden socialist states.

“I, Pencil”, is a vivid, enthralling road trip that simply and clearly details all of the people, managers, workers, components, geographic locales, shipping routes, factories, science, mining, technology, investment, heavy equipment, harvests, and more required to assemble one basic, every day lead pencil. All of this enormous activity is undertaken on a worldwide stage without the participants knowing, and for the most part caring, what the end result of their labors will go to produce. This is an elemental example of Adam Smith’s “Invisible Hand”, but one that must be continually taught and re-learned.

Every elementary school student should be exposed to the wonderful story, the clarity of thought, and the life’s lesson that is contained in the few paragraphs of “I, Pencil”. For century’s do-gooders, social planners, utopians and nihilists have presumed that they can, through centrally planned state enterprises, prescribe a path to a fairer, more perfect distribution of wealth. It has never been accomplished, nor will it ever be.

The inability to pick winners and losers, gather all of the knowledge necessary to administer programs from distant power centers and thwarting by decree the human desire to be free and work in self-interest precludes socialism from ever succeeding. Many years ago I was working in Germany and had the chance to visit Communist East Berlin. A wall had to be erected to keep the East Berliners “IN”! The simple crossing at Checkpoint Charlie was a shock. The western side of the wall was vibrant, bustling, joyful, and free. The journey over the border into East Germany was to a primitive land by comparison. People walked with heads down, drawn faces, gaunt. There was no public life. Stores were empty. The ubiquitous little two-cylinder Trabant cars, whining and belching smoke stood in stark contrast to the BMW’s, Porsche’s and Mercedes Benz’s so common on the streets of West Berlin.

A simple wall. On one side was a capitalist free state. On the other was an oppressive socialist militarist gulag. Peering into each society would make any honest, rational, fair minded observer clearly recognize that free men are happier, more productive and more beneficial to society as a whole that a citizenry cowering under the weight of a bureaucracy ruled by dint of military force, secret police presence and ideological absolutism.

Today is the perfect day to re-study Milton Freidman, Frederick Hayek, Adam Smith, the Founding Fathers, and read Leonard Read’s, “I, Pencil”. Today, a significant number of us do not revere and protect the principals of freedom that so many have fought and died for. The opportunities that each of us enjoy are being wrenched away by a well-meaning, but completely wrongheaded group of central planners who are not willing to study and learn the lessons of history.

In 1927 the Austrian inventor Eduard Haas introduced PEZ as an aid to curb smokers urges to engage in the unhealthy habit of smoking. Haas was an early anti-smoking crusader. Even in the early 20th century it was widely understood that smoking was a vile practice with potentially dire health consequences for users who engaged in the habit on a regular basis. Governments too, understood that smoking had dangerous long term effects on smokers health, and accordingly began to assess stiff excise taxes on sales of cigarettes.

PEZ were originally peppermint flavored. The word PEZ comes from the German word for peppermint. Mr. Haas believed that peppermint would energize the sense of taste and mute the smokers desire for smoking cigarettes as the flavor of burning tobacco smoke was believed to be unpleasant with peppermint in the body. For 25 years PEZ were sold in pharmacies in Europe and by today’s standards would be considered a modest commercial success.

The evolution of PEZ from an over the counter health aid to a candy took place before and during the World War II years. As much of Germany and the European continent lay in ruins Mr. Haas recognized that smoking was becoming more popular among many people. Smoking was one of the few relaxants readily available on the severely diminished retail marketplace of the time. Though an ardent evangelist opposed to smoking, Haas understood that his business would collapse unless he reinvented PEZ. The peppermint flavor of PEZ made the product an ideal candidate to be remarketed as a candy product.

In 1952 Eduard Haas began to export PEZ candy into the United States. Sales were initially very sluggish. American consumers did not respond to the strong, almost overwhelming peppermint flavor of PEZ candies. At this point Eduard Haas made a decision which provides an excellent teaching moment for entrepreneurs seeking to reposition their product.

Haas withdrew PEZ candy from the market, but he did not do so to close the brand down. He repackaged the candies, using new colors and fruit flavors that children especially enjoyed. The overpowering German peppermint was toned down significantly. Most importantly, the packaging of PEZ candies was reworked to possess the features of a child’s toy with cute animal heads that acted as a spring load delivery system to engage, and almost magically produce each piece of the candy. Children loved the interactivity of the packaging and the fruity treats that they delivered.

As a result of Eduard Haas reinvention of PEZ he created an iconic candy brand. The sales success and popularity of PEZ have continued unabated to this day. Very few consumers, even if they do not eat PEZ, fail to recognize PEZ when they see the cute little colored, animal inspired packages of the sweet.

Many inventors, entrepreneurs or small businesses hang their hats on a signature, “alpha” product. When or if sales lag they are flummoxed. What can be done to resurrect the brand? A new marketing strategy? New Branding? Redesigned packaging graphics? New distribution channels? These and other options must be considered. However, the Eduard Haas option, to reinvent the “alpha” product as a completely new item with fresh features and benefits is rarely considered. It should be.